Audit of HealthPartners turns up extravagant spending
by Tom Scheck, Minnesota Public Radio
January 15, 2003

One of five volumes of the attorney general's audit report of HealthPartners. (MPR Photo/Melanie Sommer)

Minnesota's Attorney General says an audit of the HMO HealthPartners shows the company spent millions of dollars in frivolous travel and entertainment expenses and consulting contracts. Mike Hatch also alleges the company's board has provided insufficient oversight of executive compensation. HealthPartners officials say Hatch's audit provides the company with an opportunity to improve.

St. Paul, Minn. —
Hatch says his audit found that Healthpartners executives and several board members received numerous executive perks. For example, he says the company paid for several country club memberships for former CEO George Halvorson, who left the company last year.

He also says company officials engaged in unnecessary travel to places like Australia, Chile and Brazil. The trips include one Halvorson took to Australia to attend a seminar on how high health care costs were affecting consumers.

"Is this really relevant to what's going on in this state?" Hatch asks. "We now have patients who have to be shipped on mental illness issues to places like Des Moines, Duluth, Sioux Falls. Shouldn't we be directing our attention to the problems in regard to treatment in this state?"

Hatch doesn't allege any criminal violations of the $2 billion company, which has 675,000 enrollees.

This is Hatch's second audit of a Minnesota HMO. In 2001, he audited Allina and reported similar results. Those findings were a factor in the resignations of several Allina executives, and the creation of a new board. The company also separated its hospitals and clinics with its HMO, Medica.

Hatch says both audits show that there's a widespread problem in the health care field. He says he'll ask HealthPartners to limit travel and perks over the next year and a half. He'll also recommend adding a volunteer board member of his choosing. He won't suggest any major changes as he did with Allina.

Former HealthPartners CEO Halvorson didn't return a call seeking comment. His successor, Mary Brainerd, says the company will work with Hatch. She says officials have already adopted tough accountability standards.

Brainerd says, for example, HealthPartners executive compensation packages are easier to understand. Nevertheless, she says the company has engaged in unnecessary purchases which will need to be addressed.

"Making the changes really starts at the top. It will be a reflection of the attention that I and others give to it," says Brainerd. "It will have my full attention to make the changes, and make them effectively."

Brainerd says it's unlikely company executives will make any more international trips, and she'll scrutinize out of state travel. The report didn't list Brainerd as making any trips.

Brainerd also says HealthPartners executive compensation is comparable with other $2 billion companies.

Dr. Paul Sanders with the Minnesota Medical Association says he hasn't read the full five-volume audit of HealthPartners. He says, however, that if Hatch's findings are true, doctors will make suggestions for improvement.

"We are concerned that HealthPartners and other plans be held to the accountability standards, which is to provide care to patients," says Sanders. "So we'll look with a critical eye to see to it that the monies spent have been used to provide care for patients and for necessary overhead administrative expenses to do that."

Bob Connor, a professor of health care management at the University of Minnesota, says Hatch's audits of both Allina and HealthPartners show that the problem could be more widespread.

"If you have two things, and you have two reports that are pointing in the same direction, then that's more weighty than one. And so it does mean that this is something that should be looked at," Connor says.

Michael Scandrett is a health care consultant and former head of the Minnesota Council of Health Plans. At one point during Hatch's investigation of Allina, Scandrett said he was concerned that Hatch was setting health care policy by himself. He now says health care executives and other non-profits should get used to the tactics.

"These are more important issues. There isn't one right answer. The attorney general is bringing his own perspective on it, and that's changing the rules of the game," says Scandrett. "It's going to be important for people to recognize that things have changed."

Scandrett says the audits of both Allina and HealthPartners have raised some important issues. He says, however, the the extravagances the audit found are not primary factors driving up health care costs. He says costly innovations in prescription drugs and technology are bigger reasons.

Hatch has now conducted audits of two of Minnesota's three largest insurers. He says he'll now turn his efforts toward the third, Blue Cross/Blue Shield.